Trump’s Fed pick compares current central bank policies to those of the Great Depression

Gina Heeb

Aug. 1, 2019, 05:03 PM

CNBC

Federal Reserve nominee Judy Shelton compared current conditions in the world economy to those of the 1930s on Thursday, suggesting central banks were using monetary policy to compete against one another.

"It's not unlike the 1930s when you had beggar thy neighbor competitive appreciations, where one nation after another devalued currency against trading partners," Shelton told CNBC.

So-called beggar thy neighbor policies in the 1930s, which severely restricted global trade and capital flows, contributed to the Great Depression.

Federal Reserve nominee Judy Shelton compared current conditions in the world economy to those of the 1930s on Thursday, suggesting central banks were using monetary policy to compete against one another.

In an interview with CNBC, Shelton said that stimulus measures were not boosting growth so much as they were affecting exchange rates. She added that a quarter percentage point interest rate cut — a move the Fed announced a day earlier — was "like tasing an inert body."

"But it is having an effect in currency markets and we are in a very dangerous situation," she said. "It's not unlike the 1930s when you had beggar thy neighbor competitive appreciations, where one nation after another devalued currency against trading partners."

So-called beggar thy neighbor policies in the 1930s, which severely restricted global trade and capital flows, contributed to the Great Depression.

Shelton has increasingly called for lower interest rates since President Donald Trump said last month he intended to nominate her to one of two open seats on the Federal Reserve Board of Governors. She still has to be confirmed by the Senate, which lawmakers have suggested could be an uphill battle given her unorthodox views toward policy.

"Today we have the European Central Bank, Bank of Japan, the People's Bank of China, potentially the Bank of England, all of them devaluing against our currency," Shelton said. "And that turns out to be where Central Bank monetary policy decisions have the most impact, by far more than any -- any presumed stimulus to real growth."

Trump has expressed concerns about alleged currency manipulation abroad in recent months and suggested that the US should pursue such a policy to compete with them. White House economic adviser Larry Kudlow said last week the administration had considered ways to weaken the dollar before ruling them out.